Chapter 13: Joint ventures

Nature

During the registration process for ABNs and GST, some potential registrants were unsure as to whether joint ventures could be registered as 'unincorporated associations' included in the meaning of an entity under the ABN Act. Furthermore, confusion has arisen in respect of GST joint ventures and the activities that must be undertaken to meet the participation provisions stated in the legislation.

Issue

Can businesses engaging in electronic commerce activities form a joint venture, or form a GST joint venture?

Non-interpretative - straight application of the law

Decision

Subsection 51-5(1) of the GST Act states that two or more entities may become participants in a GST joint venture if all of the following apply:

the joint venture is for the exploration or exploitation of mineral deposits as defined, or for a purpose specified in the regulations

the joint venture is not a partnership

each entity satisfies the participation requirements

each entity agrees in writing to the formation of the joint venture as a GST joint venture

one of the entities is nominated in the agreement to be the joint venture operator

the nominated joint venture operator notifies the Commissioner of the formation of the GST joint venture, and

if the joint venture operator is not a party to the joint venture agreement, the joint venture operator must nevertheless be registered for GST purposes and account for GST on the same basis as the participants in the joint venture.

Regulation 51-5.01 of A New Tax System (Goods and Services Tax) Regulations Act 1999 (GST regulations) specifies the additional 'purposes' that may become a GST joint venture. These purposes are:

research and development

the provision of insurance, other than life insurance

fishing

agriculture

cultivation, or exploitation of timber

design, or building, or maintenance, of residential or commercial premises

civil engineering, including the design, construction and maintenance of roads, railways, bridges, canals, dams, ports, harbours, airports and similar installations

generation, or transmission, or distribution, of electricity

transmission, or distribution, of water

receipt, or storage, or distribution, of oil and gas products

refining, or processing, of oil and gas products

beneficiation of minerals and primary metal production, including alloy production

charitable activities

transportation.

In addition, each of the entities must satisfy the GST joint venture participation requirements. These requirements are:

it must participate, or intend to participate, in the joint venture

it must be a party to the joint venture agreement with all the other participants or intended participants

it must be registered for GST purposes, and

it must account on the same basis as the other participants.

It is not necessary that the entity be resident in Australia, however, the entity must be registered for GST to satisfy the participation requirements.

The main effects of having a GST joint venture are:

if the joint venture operator makes a supply or acquisition on behalf of a participant in connection with venture activities, the operator is liable to pay the GST and is entitled to the input tax credit (GST Act, sections 51-30; 51-35). It also assumes the effect of any subsequent GST adjustments in relation to those transactions (GST Act, section 51-40)

if the joint venture operator makes a supply to a participant in connection with venture activities, that is not a taxable supply and GST will not apply (GST Act, subsection 51-30(2)), and

the joint venture operator makes GST returns on behalf of the venture participants (GST Act section 51-50) and makes GST payments or receives refunds of the GST joint venture's net GST amount for each period (GST Act section 51-60). If the representative member does not pay the tax, the ATO can claim it from any of the participants (Taxation Administration Act 1953, section 444-80 of Schedule 1).

Where a joint entity venture is formed for purposes other than those specified above or the entities do not satisfy the participation requirements, this venture is not considered a GST joint venture and GST must be accounted for by the individual entities within the venture.

Given the nature of activities that occur over the internet, it is unlikely that entities engaging in electronic commerce activities would currently meet the eligibility requirements specified in the GST Act or the GST regulations to qualify as a GST joint venture.

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.